Question

Meena, Ricky, and Vicky were partners in a firm sharing profits and losses in the ratio of 6 : 3 : 1. On 31st March, 2025, Meena retired from the firm, and the continuing partners decided to share profits and losses in the ratio of 3 : 2.
On the date of Meena’s retirement, the firm’s Balance Sheet showed the following items:

Balance Sheet of Meena, Ricky, and Vicky (An extract) as at 31st March, 2025
Liabilities	Amount (₹)	Assets	Amount (₹)
General Reserve	1,80,000	Investments (Market Value ₹ 40,000)	50,000
Investment Fluctuation Fund	30,000

The continuing partners decided to record the effect of the above items without disturbing the book value of the General Reserve.

You are required to record the necessary journal entries to show the above adjustments.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
Mar 31	Ricky’s Capital A/c   ...Dr.		54,000	-
	Vicky’s Capital A/c   ...Dr.		54,000	-
	To Meena’s Capital A/c		-	1,08,000
	(Being an adjustment for the General Reserve on Meena’s retirement)
Mar 31	Investment Fluctuation Fund A/c   ...Dr.		30,000	-
	To Investments A/c		-	10,000
	To Meena’s Capital A/c		-	12,000
	To Ricky’s Capital A/c		-	6,000
	To Vicky’s Capital A/c		-	2,000
	(IFF used to cover the fall in value and balance distributed)

Working Notes:

Gaining Ratio of Ricky and Vicky:

Gaining Ratio = New Share − Old Share

Ricky’s Gain = `3/5 - 3/10`

= `(6 - 3)/10`

= `3/10`

Vicky’s Gain = `2/5 - 1/10`

= `(4 - 1)/10`

= `3/10`

Gaining Ratio = 1 : 1

Adjustment for General Reserve:

Meena’s Share of Reserve = `1,80,000 xx 6/10`

= 1,08,000

This will be paid by Ricky and Vicky in their gaining ratio (1 : 1): ₹ 54,000 each.

Adjustment for Investment Fluctuation Fund:

Fall in value of Investment = 50,000 − 40,000

= 10,000

Excess IFF to be distributed = 30,000 − 10,000

= 20,000

Distribution of ₹ 20,000 in Old Ratio (6 : 3 : 1):

Meena = `20,000 xx 6/10`

=  ₹ 12,000

Ricky = `20,000 xx 3/10`

=  ₹ 6,000

Vicky = `20,000 xx 1/10`

=  ₹ 2,000